Critics say it has the potential to contaminate ground water and they point out that it has already caused earthquakes.

But Mr Osborne's "generous new tax regime" will encourage fracking as shale gas reserves could be worth £1.5trillion to Britain.

'We are consulting on new tax incentives for shale gas and announcing the creation of a single office so that regulation is safe but simple,' he told MPs.

The Office for Unconventional Gas and Oil will join up responsibilities across government departments to provide a single point of contact for investors and streamline the regulatory process.

• EDUCATION

TEACHERS' pay will be linked to their performance in the classroom from next September and they will no longer receive automatic salary rises each year.

Instead schools will be allowed to decide on salary levels for teachers, who will get annual appraisals, in a move away from national pay structures.

The plans were put forward by the School Teachers Review Body earlier this year and cover pay for classroom teachers in England and Wales but do not include school leaders such as headteachers and deputy or assistant heads.

But teaching unions have previously vowed to campaign against any bid to de-regulate pay structures. Chris Keates, NASUWT general secretary, said: "The dismantling of the national pay framework is going to be bad for children's education and bad for the teaching profession."

A £1billion building programme will fund the construction of 100 new free schools and academies as well as the expansion of existing "good" schools, while £270million is being injected into further education colleges.

A further £600million is being invested in scientific research infrastructure through the Research Council in a move the Treasury believes will drive long-term economic growth.

• FOREIGN AID

MINISTERS came under fire last night for failing to reign in Britain's soaring foreign aid spending programme as the UK's international development budget is set to rise from £8.6billion to almost £11.8billion by 2014.

The Chancellor vowed the increase was necessary for Britain to honour its pledge to meet the UN target of spending 0.7 per cent of national income on overseas aid next year.

But the rise will be smaller than expected in cash terms because it is calculated as a proportion of national income, which has shrunk by 0.1 per cent this year, rather than increasing by 0.8 per cent as forecast in March.

And Mr Osborne told MPs that there would be no increase beyond the UN commitment in the years to come.

The Chancellor had been urged by his party's backbenchers to ditch the 0.7 per cent promise, which they argue is unaffordable. The Department for International Development is being asked to make cuts in its own day-to-day spending of £250million in 2013/14 and £430million in 2014/15, in line with other ministries.

Matthew Sinclair, chief executive of the TaxPayers' Alliance, said: "George Osborne missed an opportunity finally to make the DFID subject to the same necessary spending cuts as other Whitehall departments."

• BUSINESS

MEASURES intended to support business include moves to make the UK's tax system the most competitive of the G20 nations.

The main rate of corporation tax will be cut by 1 per cent in April 2014 to 21 per cent, on top of previously announced reductions.

The Small Business Rate relief scheme will be extended by a further year to April 2014, while other measures include consulting on reducing "unnecessary burdens" from regulations covering the transfer of workers to other employers.

The Government also announced that £120million will be made available to help manufacturers invest in areas including equipment, research and skills.

The money will fund a scheme in England aimed at firms in the sector's supply chain, including aerospace, automotive, chemicals, construction, life sciences and energy.

A business bank will become fully operational in the autumn of 2014, although no new money was announced for the £1billion venture.

Richard Baron of the Institute of Directors said: "The surprise reduction in corporation tax is a very welcome boost to the UK's competitiveness at a critical time.

"The private sector is working hard to deliver jobs and growth. Reducing the tax burden for all businesses is the most straightforward way to help them expand."